Definition, Purpose and Regulation of Supertax Deduction

INCREASING economic competitiveness needs the support of 3 factors, namely innovation, technology and the quality of human resources (HR). One of the ways to catalyse economic growth is by optimising activities in the research and development sector.

In the business sector, investments in research and development are key to business innovation, thereby, companies may increase productivity and maintain business sustainability (Darussalam and Tobing, 2013).

Incentives are required to encourage various parties to improve innovation, technology and human resources. Tax incentives may be provided to influence entrepreneurs’ decisions in incurring costs to support the need for a competent workforce according to industrial needs.

In this context, the Indonesian government provides supertax deduction incentives for parties implementing vocational education programs and those performing certain research and development.

As such, what does supertax deduction mean?

In essence, tax deduction refers to deductible expenses from gross income to determine taxable income (Fishman, 2021). The deductible expenses from gross income are business-related costs to obtain, collect and maintain income (3M costs).

Under statutory provisions in Indonesia, there is no explicit description of the definition of supertax deduction. However, simply put, supertax deduction refers to a tax deduction for taxpayers granting for certain activities according to the criteria stipulated under statutory provisions.

The granting of supertax deduction incentives in Indonesia is outlined in Article 29A and Article 29B of Government Regulation No. 45 of 2019 concerning the Amendment to Government Regulation Number 94 of 2010 concerning the Calculation of Taxable Income and Settlement of Income Tax in the Current Year (Gov. Reg. 45/2019). Broadly speaking, pursuant to Gov. Reg. 45/2019, the supertax deduction incentives are granted for two scopes of activities, namely vocational activities and research and development.

Pursuant to Gov. Reg. 45/2019, the supertax deduction incentives are given to encourage investments in labour-intensive industries and support job creation and employment programs in Indonesia.

The supertax deduction is also granted to encourage the involvement of the business world and the industrial world in preparing quality human resources. With these incentives, economic competitiveness is expected to increase. In addition, the incentives are also expected to encourage the role of the business world and industry world in conducting research and development.

Currently, the government has issued two implementing regulations for the supertax deduction incentives. First, the Minister of Finance Regulation No. 128/PMK.010/2019 concerning the Granting of a Reduction in Gross Income for Externship, Internship and/or Apprenticeship in the Context of Fostering and Developing Certain Competency-Based Human Resources (MoF Reg. 128/2019).

Second, the Minister of Finance Regulation No. 153/PMK.010/2020 concerning the Granting of Gross Income Reduction for Certain Research and Development Activities in Indonesia (MoF Reg. 153/2020).

It should also be understood that the expensing of research and development costs as deductible expenses from gross income was formerly regulated under Article 6 paragraph (1) subparagraph f of Law No. 7 of 1983 concerning Income Taxes as amended by Law No. 11 of 2020 concerning Job Creation (Income Tax Law).

This concludes our review of the definition, purpose and regulation of the currently applicable supertax deduction in Indonesia. Look forward to and follow the next tax class article which will further review the implementation of the supertax deduction in Indonesia for vocational activities. (vallen/kaw)